EPLUS INC Q1 FY2025 earnings call

• Executed on strategic initiatives around AI, cloud security, and related advisory and annuity services. - Net sales declined 5.2% due to a tough year-over-year comparison and product sales impact from supply chain constraints. - Services revenues sustained solid growth with overall service revenues up 15.8%, managed services up 28% year-over-year, and managed services bookings up ~70% year-over-year. - Security was over 20% of gross billings in the trailing 12 months and up over 9% quarter-over-quarter. - Financing segment revenue up 6.4% due to higher portfolio earnings. - Saw strong interest in AI Ignite program and discovery assessments, rolled out new storage as a service offering and Azure recovery program. - Higher SG&A expenses due to head count from organic hires and Peak acquisition, but disciplined with SG&A costs sequentially. - Cash balance at $350 million, repurchased 162,319 shares during the quarter.

First quarter consolidated net sales totaled $544.5 million, down from $574.2 million in the prior year due to lower product sales in the technology business. Product revenue decreased 8.2% year-over-year, primarily due to lower sales of cloud and networking products. The services business posted net sales up 15.8% to $78.2 million, with managed services up 28% year-over-year and professional services up 4.8%. The financing segment had net sales of $9 million, a 6.4% increase from the prior year primarily due to higher portfolio earnings. Consolidated gross profit declined to $134.5 million from $142.3 million, but gross margin declined only 10 basis points to 24.7%. Operating expenses grew 3.2% year-over-year but declined 2.3% sequentially. Consolidated net earnings were $27.3 million, down from $33.8 million in the prior year, but sequentially increased 24.4%. Cash and cash equivalents ended the quarter at $350 million, up from $253 million, with inventory at a 3-year low and cash conversion cycle improved to 37 days.

• Maintained fiscal 2025 guidance for net sales growth over the prior fiscal year of between 3% and 6%. - Maintained adjusted EBITDA range of $200 million to $215 million.

Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release and the company's periodic filings with the Securities and Exchange Commission, including those related to market conditions, supply chain disruptions, and customer adoption of products and services.

Q: About the upcoming fiscal second quarter, how it's progressed and confidence in full year guidance?

A: Q2 is in line with expectations, with the first half being challenged by a tough year-over-year comparison, but the full year guidance is maintained.

Q: Regarding customer product backlog and order flow normalization?

A: Gross billings have started to normalize as supply chains stabilize, and the company expects a more normal run rate going forward.

Q: About AI business growth and opportunity?

A: All customers are interested in the AI Ignite program, with pipeline building, though it's early innings.

Q: Negatives or benefits from the CrowdStrike issue?

A: One customer benefited with an extended service agreement, but it wasn't a significant revenue impact.

Q: Outlook for Q2 and operating leverage?

A: Q2 is positive, and operating leverage is expected as investments start to drive revenues while operating expenses remain in line.